The Australian Energy Regulator today issued its draft decision on the distribution determination to apply to ActewAGL's electricity distribution network for the regulatory control period 1 July 2009 to 30 June 2014. This is the first draft distribution determination for ActewAGL to be made by the AER.
Distribution networks move electricity from the high voltage transmission network to residential and business customers. ActewAGL is the sole electricity distribution network service provider in the ACT and supplies electricity to around 156,000 customers.
"The draft decision provides for $278 million worth of investment in ActewAGL's electricity distribution network over the next five years, which represents an increase of more than 70 per cent from the current level of investment of $163 million for the past five years," AER Chairman, Mr Steve Edwell, said.
"This investment expenditure and higher operating costs are likely to result in higher retail tariffs. ActewAGL has forecast that its network charges will increase the average residential electricity bill for 2009–10 by around $1.80 per week*," Mr Edwell said.
This price increase is indicative and is based on ActewAGL's regulatory proposal. Actual prices will be determined by the AER in May next year following the AER's final decision. The AER considers that the need for increased investment and higher input costs is consistent with the price increase proposed by ActewAGL.
Distribution charges represent about 23 per cent of the average cost of final delivered energy in the ACT. The increase is mainly driven by significant investment in capital projects—including construction of two new zone substations which are the first to be built in the ACT since 1994, augmentation of a third substation and construction of new assets to improve the security of electricity supply to the ACT.
"While consumers within the ACT will face higher charges as a result of the increased investment, they will also benefit from a more reliable and secure network," Mr Edwell said. "And given these projects ActewAGL is well placed to accommodate the expected shift to a summer peak in network demand, without jeopardising reliability."
ActewAGL has already undertaken capital works to reinforce and replace a large number of unsafe poles and this cost will now flow through to consumers.
The limited supply of labour in Canberra, particularly in the non-residential sector has increased operating costs, along with the need to maintain an ageing network.
Global financial conditions impact on electricity prices as they influence the borrowing costs of networks. While the global financial crisis is now putting downward pressure on official interest rates, margins on commercial debt are still above historical levels. The cost of capital used to determine ActewAGL's revenue and tariffs will be set closer to the time of the final decision. If global financial conditions improve and commercial debt premiums decline this will be reflected in a lower cost of capital for ActewAGL and lower electricity tariffs for consumers.
In making its draft decision, the AER took into account submissions from interested parties and advice from independent experts. These documents will be available on the AER's website.
The AER invites written submissions in response to its draft decision, which close on 16 February 2009. The AER will hold a pre-determination conference in Canberra on 8 December 2008, for the purpose of explaining its draft decision and to receive oral submissions from interested parties. The AER will consider all issues raised by interested parties in response to the draft decision before issuing its final decision by 30 April 2009.
Background
Under the National Electricity Law (NEL) and the National Electricity Rules (NER), the AER is responsible for the economic regulation of electricity distribution services provided by distribution network service providers (DNSPs) in the National Electricity Market (NEM).
The AER makes determinations setting out the maximum revenue that DNSPs can earn in a five year period from 'direct control services'. The revenue determination for ActewAGL is subject to the transitional chapter 6 rules which are included at chapter 11 of the NER.
The AER commenced economic regulation of electricity distribution networks on 1 January 2008. Prior to that, the Independent Competition and Regulatory Commission was responsible for regulating ActewAGL's revenues. ActewAGL's current determination (set by the ICRC) commenced 1 July 2004 and expires on 30 June 2009.
On 2 June 2008, ActewAGL submitted a revenue proposal to the AER in accordance with transitional chapter 6 of the NER.
The ACT is supplied with electricity from the New South Wales transmission grid through two bulk supply points—at Holt and Oaks Estate. Both of the bulk supply substations and the incoming 330 kV and 132 kV transmission lines are owned and operated by TransGrid.
ActewAGL operates 11 zone substations and two switching stations. The zone substations reduce voltage to a level at which distribution feeders operate. ActewAGL's reticulation system includes underground and overhead conductors and more than 4,000 distribution substations that are required to further reduce the voltage to the level at which the electrical energy is distributed through overhead or underground low voltage lines.
Underground lines, which are more expensive to install but generally less expensive to maintain than overhead lines, now account for almost half the total line length in ActewAGL's network. However, the benefits of the significant proportion of underground lines on ActewAGL's maintenance costs are outweighed by the relatively high costs of maintaining overhead lines in the ACT. Backyard overhead reticulation and the large proportion of natural hardwood poles in ActewAGL's overhead network make it especially costly to maintain and replace, relative to those of other distributors.
Distribution networks consist of network assets distributing electricity at nominal voltages up to 66kV. However in some circumstances assets operating at nominal voltages between 66kV and 220kV may be deemed to be part of the distribution network upon agreement between the AER, the relevant jurisdictional regulator and the relevant network operator.
*ActewAGL has assumed an average customer is one on the "Always Home @ ActewAGL" plan and consuming 8000 kWh per annum. Always@ Home plan consists of the following charges:
- Supply charge per day (incl. GST) – 51.7 cents
- Consumption (incl. GST) – 14.19 cents p/kWh